Luan Fouche and Bernie Herberg, Senior Tax Advisors at Stonehage Fleming

The guidelines announced in late April by the Department of National Treasury in relation to the externalisation of funds from South Africa have ushered in a new era in tax compliance.

At the outset it should be noted that Treasury has not introduced new rules regulating the externalisation of funds abroad, but rather introduced an overhaul of the application process. The R1 million single discretionary allowance per calendar year remains available to residents and continues to require no approval from the South African Revenue Service (SARS). It is further expected that SARS will continue to perform enhanced due diligence for applications in excess of R10 million (so-called ‘special applications’). Moreover, applicants continue to have the option of submitting the application manually or via efiling.

A more comprehensive process known as the Approval for International Transfer (AIT) is in place combining the previous Foreign Capital Allowance (FIA) and the Emigration Tax Clearance application into one. The changes will apply to both residents (seeking to transfer more than R1 million from South Africa for the calendar year) and non-residents (irrespective of the amount involved) which requires a Tax Compliance Status (Certificate) from SARS to externalise funds abroad.

Apart from the fact that a new name has been given to the application, an important further change is that selected information that was previously requested by SARS as supporting documentation is now embedded in the AIT application itself, to be provided up-front.

Why the change?

Since the introduction of the previous process during 2016, SARS has processed substantial and growing volumes of third-party verification requests, particularly since the removal of the separate South African Reserve Bank emigration application in March 2021, so further changes to SARS’ processes and forms were required.

The greylisting of South Africa by the Financial Action Task Force (FATF) in February 2023 has also no doubt influenced the change in SARS policies. With the introduction of the AIT process, SARS aims to align itself with the FATF recommendations and demonstrate a commitment by South Africa to prevent financial crime and mitigate further risks of being blacklisted. The new process supports SARS’ focus on compliance enforcement and continuous tax compliance by applicants.

The AIT application requires a much deeper level of disclosure compared to its previous iterations, such as separate disclosure of local and foreign assets and liabilities for the past three years, residency status and if trusts or company ownership are a factor, submitting relevant details such as on loans or shareholding in a company exceeding 20%.

There are detailed guidelines on the supporting documentation to be provided based on the applicant’s selection of the source of the funds. If the source of funds is cash, for example, the required documentation must show how the funds were derived, such as through the sale of shares.

SARS may request further details for special applications such as the applicant’s occupational background or where the funds are situated.

In our experience, SARS typically responds to the AIT request within 21 working days from the application. This is generally followed up by a request for supporting documentation, which is finalised within a further 10 to 14 business days after all supporting documentation has been submitted. Approval for special applications may take considerably longer depending on the complexity and typically involves an audit of parties connected to the applicant (e.g. companies and trusts).

Often overlooked, non-residents may apply to externalise assets (other than cash, for example shares in unlisted companies). This offers a practical solution to the continual remittance of capital funds abroad (e.g. sale proceeds) via the AIT process.

Key take-away

Simply stated, the documentary and disclosure requirements under the AIT process have been made more onerous. It has evolved beyond the mere exercise of filling in a form. All future disclosures will form part of an increasing digital and artificially intelligent world and extend beyond the applicant to include certain connected persons such as companies and trusts.

By way of example, an applicant will be required as part of the AIT process to disclose any interest free loans to local and / or foreign trusts to SARS and may have to deal with the potential “fall-out” if queried by SARS. The result is that taxpayers and their tax advisors need to act with caution when completing the AIT process.

It is expected that the AIT process should be more seamless for compliant taxpayers but will become difficult for those that are non-compliant as an applicant will be confronted with any historic non-compliance.  

It is becoming increasingly difficult for taxpayers (and specifically wealthier ones) not to be transparent and compliant in respect of their tax affairs.